Recently the Supreme Court of NSW dismissed a plaintiff’s claim in equity, on the basis that the deed he relied upon was not validly executed, and there was no legally binding contract between the parties.
In the case, the plaintiff James Brown agreed to be the lender for a hotel and function business that was struggling financially. The first defendant was Tavern operator, the company operating the business, and the second and third defendants, Gregory Nixon and Bronwyn Tallis, controlled the company.
The parties entered into a Heads of Agreement in May 2012 where Brown greed to pay certain debts in exchange for a being appointed director and shareholder of Tavern Operator. Following this, Brown made payments amounting to around $200,000 up until September 2012. On 21 September 2012, Nixon and Tallis signed a document, which was expressed to be a deed, stating that Brown had paid debts for the business and that one half of the property and one half of shares in Tavern Operators, would be transferred to him upon execution of the deed.
Brown commenced proceedings in 2015 asserting his supposed rights under the signed document. The Court considered two issues:
- The first issue concerned whether the signed document was a validly executed deed. The Court held that it was, having found that the witness who attested to Nixon and Tallis’ signatures was not in fact present when the document was being signed. In accordance with law, this means that the signed document is not an executed deed and therefore not enforceable.
Further, it was found that Brown had presented the documents to Nixon and Tallis with the impression that they were merely for “security”, to be kept “in a drawer”, in the event that there was a default in repayments to Brown. The Court held that, if Brown’s claim had succeeded, the defendants would have been successful in a cross-claim that there was unconscionable conduct by Brown in misrepresenting to the defendants what the signed document really was.
- The second issue concerned whether the Heads of Agreement entered into, could be considered a legally binding contract. In the event it did, Brown would be able to succeed in his claim regardless of whether the deed was validly executed. The Court found however, that the agreement was also not binding or enforceable as the only consideration given was past consideration.
In contract law, consideration, which is an act or forbearance put forward to induce the other party into the contract, is one of the elements required to establish a valid contract. Common law, per Re Casey’s Patents , holds that past consideration is not considered good consideration. Hence, the Heads of Agreement in this case, could not be held a valid contract.
Brown was unable obtain any parts of the property or shares in Tavern Operators. This case indicates the importance of ensuring that each element of a deed or contract has been correctly addressed for it to be enforceable.
If you have been a victim of misrepresentation or unconscionable conduct in a deed or contract, or have any queries relating to issues featured in this article, please do not hesitate to contact us on 02 8917 8700 or fill out the enquiry box and we will get back to you ASAP.